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A worker carries scaffolding as he walks to a job in Havana, Cuba, Thursday, June 27, 2019. Cuban President Miguel Díaz-Canel says the country's governing council has approved economic measures including a rise in state salaries, long seen as a first step toward ending the country's dual-currency system which is expected to create a chain reaction that includes higher inflation. (AP Photo/Ismael Francisco)

Cuba announces increase in wages as part of economic reform

June 27, 2019 - 7:34 pm

The Associated Press

HAVANA (AP) — The Cuban government said Thursday that it is raising state salaries as part of a broader package of economic reforms, but it revealed no details of its larger plan beyond increasing worker compensation.

A salary increase has long been seen as one of the first steps in the unification of Cuba's unique dual-currency system, a process that could be a risky gambit in the face of an economic crisis exacerbated by tightened U.S. sanctions.

For the last quarter-century, Cubans have used one peso worth about four cents and another worth nearly a dollar. The stronger peso was introduced as a replacement for the dollars traded on the black market during the island's post-Soviet economic crisis in the 1990s. Over time, the two currencies have come to be used by the communist government to set extremely low prices for goods and services considered basic rights and extremely high prices for others considered luxuries, creating distortions that cripple economic growth.

Cuban officials said Díaz-Canel presided over an important meeting of the country's governing Council of Ministers Friday evening, although they did not specify the agenda of the meeting. The collapse of Venezuela's economy has led to a cut in aid to Cuba, and sharp slowdown worsened by a series of Trump administration measures designed to cut off funding to the island's government.

"A meeting of the Council of Ministers approved economic measures to overcome the current situation, and an increase in the state sector," Díaz-Canel wrote on Twitter Thursday evening. He said details would be announced on state television at 8 p.m.

When a state-run newspaper tweeted that a wide-ranging salary reform had been approved, the president quickly responded that, "this is an incremental salary increase. Next comes the reform."

The announcement read on state television said that the minimum salary would be nearly $17 a month while the average salary would increase from $32 to $44.

The announcement made repeated references to a variety of measures approved by the Council of Ministers, but said only that, "in coming days, our population will receive more detailed information about the extent of the reforms through various media."

Under Cuba's byzantine pricing system, an average water bill denominated in Cuban pesos will be a few dollars, for example, while home internet billed in the stronger convertible peso can cost hundreds of dollars a month. While the average Cuban must trade 24 or 25 Cuban pesos for a convertible one, many state-run enterprises can obtain a convertible peso for 10 Cuban pesos or even one peso, a privilege that effectively subsidizes the state sector by many hundreds of millions of dollars a year.

The special rate also incentivizes importing goods instead of producing them on the island, a major flaw in Cuba's stagnant economy and strained state budget.

Ending the dual-currency system is expected to lead to the eventual removal of subsidies and bankruptcy of dozens, even hundreds of state enterprises and the loss of many thousands of public sector jobs. With lower or no subsidies, state companies would be forced to raise prices. For that reason, a state salary increase has long been seen as a key precursor to monetary unification in Cuba.